How do I Buy Closed-End Funds Without a Broker?

by Tom Streissguth

If you're buying into closed-end funds, that broker might not be necessary.

If you're dipping your investment toes into the mutual fund pool, you may come across "closed-end" funds that trade on the stock exchange. While most exchange transactions involve a broker, you may be able to make a direct investment. Some funds will allow this and spare you broker's fees and commissions.

Open and Closed Mutual Funds

Open-end mutual funds allow you to buy and sell at the net asset value, which is the total assets of the fund divided by the number of outstanding shares. The NAV is set once a day, at the close of business, and changes in value along with the assets within the fund. A closed-end fund, by contrast, trades on a public exchange, much like a stock. The value rises and falls with supply and demand. The NAV of the fund may be more or less than the quoted price of the shares.

Using a Broker

For the most part, investors have to go through a broker to buy and sell shares of a closed-end fund. Online brokers as well as conventional brokerage offices will accept these orders. A broker can take orders throughout the day, accept a limit on the price you pay or receive for your shares, and set up a "good till cancelled" order that only fills at the price you set. Of course, for his services, the broker will charge a commission, either a flat rate or a fee that varies with the size of the purchase or sale.

Direct Purchase

Some closed-end funds will allow a direct purchase of shares through a transfer agent. This is the firm that handles the issuance of shares to the market. Transfer agents handle a list of securities -- stocks, bonds, mutual funds -- and will act, in effect, as your broker in the direct purchase. You would need to set up an account with the agent, just as you would with a broker, and supply basic information such as a Social Security number.

Account Requirements

A transfer agent that allows direct purchase will set some account requirements. Computershare, for example, lets clients buy into the closed-end Aberdeen Australia Equity Fund with a minimum initial investment of $50, as of 2014. This agent also sets a maximum annual investment in the fund at $250,000. No commission is charged, but Computershare charges an initial setup fee of $10 and a cash purchase fee of $5 in addition to several other fees. You can access fund information through the site, and you can also set up automatic monthly investments, again at a minimum of $50.